In a tif with Mayor Daily
Published by Mark Von Nida on May 3rd, 2008
By Mark
I returned this week from a conference in Springfield in which a highlight was a session including Cook County Commissioner Mike Quigley. Quigley has gained a reputation as a fierce fiscal watchdog who does his homework and as a critic of the use of Tax Increment Finance districts.
Quigley has braved the ire of Mayor Daily by pointing out such facts as at a half a billion dollars, TIF funds in the city would qualify as the second largest expenditure behind only police protection. Economic Development is indeed a worthy goal for any city but Quigley is quick to point out these funds are outside of normal government funds controls.
In Chicago, a Citizen Developement Council oversees the use of the funds however, the council is made up of mayoral appointees. Out of over 800 votes taken by the council, 96% were yes votes. Without controls and accountability normally associated with tax dollars, the potential for abuse and corruption is self evident.
Quigley is the co-author of a report, A Tale of Two Cities which outlines several suggestions for reform. The emphasis is on transparency and reporting to the taxpayers the impact of TIF projects on their property taxes. This an intriguing subject in which I plan to write more extensively later. Let’s begin a conversation on this subject.
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May 3rd, 2008 at 11:33 am
Study after study show TIF’s are not good for the taxpayers in the longterm. I would hope Madison and St. Clair counties would pass legislation to eliminate the use of TIF’s throughout each county.
This an excellent article on wy we don’t need TIF’s.
Local governments throughout Missouri continue their never ending quest to lure favored businesses and keep the chosen ones they already have within their boundaries, by granting tax abatements, tax increment financing (TIF), and tax exemptions. Yet not every government entity in Missouri is playing this game. One local government in particular has vociferously opposed TIFs, and has been extremely careful with its use of other development tools. How has it worked for them? The government in question, Saint Charles County, has been the fastest-growing county in the state for three decades.
While governments constantly seek to both raise tax revenues and lure businesses, too often they first enact burdensome tax codes and regulations, then give away the store to the select businesses they want to lure in. Wouldn’t it be much easier on everybody to create a favorable tax and regulatory climate across the board, and trust that it will lure businesses and development to your community? Saint Charles has chosen the latter plan, and the economic growth in the county speaks for itself.
Saint Charles has not only refused to use TIFs, it has actively fought court battles when cities within the county have attempted to use them. The cities within Saint Charles know they will have a fight on their hands every time they attempt to enact a new TIF. The result is that only 491 parcels of property in Saint Charles are involved in a TIF, compared to 1,808 in Saint Louis County and 2,293 in Saint Louis city. The fact that all of the TIF parcels in Saint Charles and most in Saint Louis County are within municipalities is a strong argument for having these decisions made at the county level.
An analysis conducted by business consultants for the Saint Charles Economic Development Council in 2004 stated, “TIF financing [sic] is often not easy to get approved,” citing this as one of the few drawbacks to the county’s business climate. Of course, the consultants — who are in the business of getting incentives for their clients — relied on the constant canard that maintaining a competitive edge requires increased use of government incentives. Recent history has demonstrated that Saint Charles has done just fine, thank you, with very limited use of incentives.
The county has also refused to issue tax abatements and exemptions, while it has judiciously managed the use of tax-free revenue bonds for projects. Basic economics teaches that a wider tax base enables lower rates for everyone, and these low taxes are certainly one of the reasons the population of Saint Charles has increased from 145,250 in 1980 to 348,844 in 2007. Comparing property tax rates across boundaries can be tricky, but one tax levy in particular compares directly and consistently. The commercial surcharge that is added to commercial property tax bills in every Missouri county totals $1.64 per $100 of assessed valuation in Saint Louis city, $1.70 in Saint Louis County, and just $0.53 in Saint Charles. Clearly, when taxes are this low, you don’t need to dole out tax breaks.
Obviously, many other factors explain the tremendous growth throughout Saint Charles, and some of the county’s cities have aggressively used TIFs and other incentives for their own developments. Has the use of incentives by municipalities like Saint Peters and O’Fallon had a greater impact on the area’s economic growth than the county’s prudence has? One might argue that, but the county’s general low-tax and pro-business policies have been in effect for three decades. The use of incentives by cities has come too recently to explain most of the growth.
Like an arms race, local governments throughout Missouri fear unilateral TIF disarmament would put them at an economic disadvantage. Saint Charles County has shown that it is possible for a local government to avoid the use of tax giveaways and still be a growing, thriving community. I hope other governments throughout Missouri will learn from this example.
David C. Stokes is a policy analyst at the Show-Me Institute, a Missouri-based think tank.
May 5th, 2008 at 8:40 am
Is it fair to use St. Charles as an example of not using TIF? For many years that area has seen growth well out of proportion to the rest of the area, a very desirable place for business to locate. The same with Clayton which is another city which has until recently, never used TIF.
Is there a way to track how TIF areas affect property taxes? Property tax rates often stay the same from year to year, but the tax bill is higher because of higher appraised value. If the TIF districts weren’t bringing in extra revenue, or the new business wasn’t in place would the taxing districts be raising the rate?
I’m not defending TIF’s I know how pervasive they have become, often because cities have been told the business will go down the road to another city if they don’t institute a TIF. But it is beginning to appear more and more that TIF’s may not be the first choice when approving new development.
May 5th, 2008 at 8:54 am
In response to Diane Meyer
University of Illinois
Volume 13, Number 4, 2000
TIF districts hinder growth
Study finds that cities without TIFs grow faster
By Richard F. Dye and David F. Merriman
Tax increment financing (TIF) is a policy tool used by municipalities in Illinois and 46 other states to stimulate economic growth in a designated area of a city or village that is by statutory definition “blighted.” Do TIF districts work—that is, do they spur economic growth?
Our analysis of 235 municipalities in the metropolitan Chicago region finds cities, towns, and villages that had TIF districts actually grew more slowly than municipalities that did not use TIF.
With tax increment financing, a municipality seeks to promote economic development by allowing certain areas, designated as TIF districts, to use the tax revenues generated by increases in the assessed value of properties within them for investment in the district. For example, the improvement of a commercial property within a TIF district may increase the value of that property from $200,000 to $300,000. Applying the combined tax rate of the municipality, the school district, and all other local governments, this increase in property value will result in, say, $3,000 in additional property taxes collected from the owner. The TIF district is then allowed to use all of this $3,000 “tax increment” to finance public infrastructure or to reimburse private developers for start-up costs. TIF district expenditures are often financed by borrowing against 20 or more years of future revenues.
Why use incentives?
Economists identify four main reasons why local governments might want to use economic development initiatives such as TIF. They might seek to improve blighted areas. They might seek to overcome “market failures” that inhibit development, such as when the cost of locating in an area is disproportionately high for the first entrants. In some cases, they might want to use development initiatives to compete with other municipalities in bidding wars for new development. In addition, some critics argue that a municipality might want to use TIF to gain property tax revenue at the expense of the other local governments, such as school districts, in the same area. As a rule of thumb, municipalities receive about 15 percent of property tax revenues in Illinois, school districts 60 percent, and 25 percent goes to all other local governments. The TIF district captures all incremental property tax revenue, including the money that would otherwise go to schools and the other local governments.
(Edited by Al Adomite on 5/6/08 to fix formatting)